Bitcoin ecosystem asset types summary, plain language explanation of the technical differences behind ARC-20, SRC-20, etc.

In addition to the Ordinals and BRC-20 protocols, what are some of the new asset protocols being developed on the Bitcoin network? What are the principles and advantages of each? Cryptocurrency venture ABCDE has compiled a comprehensive report that covers ARC-20, SRC-20, BRC420, Taproot Asset, and RGB.

Bitcoin Starts to Truly Develop an Ecosystem

Before the Ordinals protocol emerged, Bitcoin had no connection to an "ecosystem" because Bitcoin's design was inherently unsuitable for supporting Turing-complete computers.

The Ordinals protocol introduces the design of Inscription, making the Bitcoin ecosystem possible. Recently, the market enthusiasm for Ordinals protocol has surpassed many other smart contract public chains, and even projects similar to Inscription have started to appear online, indicating that Inscription has become a hot topic in the market.

The fervor in the major public chain inscription markets brings real stress tests to network performance.

Diverse Development of Bitcoin Ecosystem Asset Protocols

Taking advantage of the momentum of the Bitcoin ecosystem, many protocols have recently emerged attempting to create new asset categories using different principles, such as ARC-20 or the resurgence of past projects like SRC-20. What are the differences between these protocols and BRC-20? From a technical perspective, what evaluations can be provided besides the hype?

Ordinals

Before understanding other projects, it is essential to grasp the concept of the Ordinals protocol.

Thanks to the Taproot upgrade of the Bitcoin network, which removes the data size limit in Segregated Witness (SegWit), the Ordinals protocol has the opportunity to utilize this space. The protocol allows for NFT image and other metadata information to be stored directly in the signature data, Witness Data, allowing for images as large as 4MB to be accommodated, akin to being "inscribed" on a specific Satoshi, the smallest unit of Bitcoin. This is the origin of the term "Inscription."

While the original design of Segregated Witness was not intended for this purpose, the Ordinals protocol passively transforms the Bitcoin network into a cloud storage space with "immutable and permanent storage" characteristics.

Unlike other ecosystems that may store metadata in networks like IPFS, the Ordinals protocol makes the Bitcoin network more like Arweave, capable of permanently storing information. Therefore, apart from the 4MB size limit, it seems that there is no network more suitable than BTC as a platform for NFTs.

BRC-20

BRC-20 is actually a type of Ordinals protocol. Domo utilizes the Ordinals protocol as a foundation to simulate a homogenized token mechanism similar to ERC-20, naming it BRC-20.

The implementation of BRC-20 is quite clever. Since Ordinals have no restrictions on file formats, JSON file formats are also permissible. Therefore, Domo uses the JSON file format to easily implement three operations: deploy, mint, and transfer. Leveraging an external indexer, Indexer, for reading and execution, BRC-20 achieves minting and transferring functions similar to the ERC-20 standard.

The role of the Indexer is a temporarily centralized infrastructure that provides all BRC-20 searches on the Bitcoin chain. It indexes the amount of BRC-20 tokens held in each wallet based on the operations of deploy, mint, and transfer.

However, BRC-20 has a significant drawback. Because it relies on an external Indexer, the protocol's security is at considerable risk and is not protected by the consensus of the Bitcoin network.

What are the security risks generated by the incomplete infrastructure of Bitcoin's BRC-20?

Atomicals ARC-20

The Atomicals protocol ARC-20 adopts a technique similar to Colored Coins, binding tokens to Bitcoin's UTXO ledger directly, truly "inscribing" them onto Satoshis.

While ARC-20 also requires an Indexer to index the existence of ARC-20 inscriptions, its transaction transfers rely entirely on BTC's mainnet UTXO ledger operation, independent of the Indexer's execution and judgment. Assets within the UTXO ledger enjoy the composability of most network infrastructures, enhancing the programmability of ARC-20. For instance, transactions between BTC and ARC-20 theoretically only require swapping UTXO inputs and outputs to execute.

Compared to protocols like BRC-20 that heavily rely on Indexer judgment for minting and transfers, ARC-20 significantly enhances security and avoids BRC-20's so-called "garbage UTXO."

Additionally, Atomicals has several unique features. For example, introducing a mining mechanism called Bitwork similar to Proof of Work during the minting process, making it fairer, more decentralized, and aligning with BTC's technical characteristics. There is also a possibility of designing a BitVM based on the ARC-20 protocol and AVM, allowing Bitcoin-exclusive BitVM to become a reality, although it remains a concept at present.

However, everything comes with a cost. While Atomicals achieves more decentralization, security, and programmability compared to BRC-20, it also brings higher issuance costs and potential loss of assets along with UTXO spending, coupled with severe infrastructure deficiencies relative to the BRC-20 protocol. Fortunately, UniSat has begun supporting Atomicals, indicating that Atomicals still has a long way to catch up with Ordinals.

Runes

The founder of the Ordinals protocol, Casey, has been displeased with the continuous generation of junk data by BRC-20 but could not intervene, as the market would not cease speculation because of it. As a compromise, he offered a more secure and efficient homogenized token protocol — Runes, in hopes of reducing the burden on the Bitcoin network by speculators.

Aside from inscriptions, how does the Runes protocol Rune drive market speculation once again?

Technically, Runes and Atomicals are very similar, both writing TokenID, outputs, quantities, and other information in the UTXO ledger, delegating transaction execution and security to Bitcoin Layer1, with minimal reliance on an Indexer.

The difference lies in the fact that Runes write specific quantities of tokens in the data, rather than the 1 satoshi = 1 token model. While this enhances precision over ARC-20, it also increases complexity, making it challenging to directly utilize Bitcoin UTXO composability like ARC-20.

Aside from inscriptions, how does the Runes protocol Rune once again drive market speculation?

However, the Rune protocol is merely a concept; Casey has not implemented a product. Instead, Trac's team preemptively created the first functional Runes protocol based on this concept, issuing PIPE Runes.

SRC-20

SRC-20 originates from the BTC Stamps protocol, which competes directly with the Ordinals protocol, serving as an NFT issuance application. While Ordinals protocol stores data in segregated witness fields, BTC Stamps stores data in the transaction outputs of BTC UTXO.

SRC-20 is the homogenized token version of BTC Stamps, equivalent to BRC-20 of the Ordinals protocol. Compared to BRC-20, where data stored in segregated witness may be pruned by nodes, SRC-20 utilizes the Counterparty protocol to disperse data storage across multiple UTXO ledger outputs, ensuring more permanent data storage.

However, the downside of SRC-20 is its high cost. The minting cost of SRC-20 is approximately ten times that of BRC-20.

Additionally, SRC-20 appears to be more favored by developers in the West, serving as a weapon to counter the BRC-20 system in the East.

BRC-420

BRC-420 is a metaverse protocol launched by the Recursiverse team, distinct from the asset issuance protocols mentioned earlier, leaning more towards application layer and complexity.

The Bitcoin ecosystem not only involves inscriptions and BRC-20 but also a series of blockchain gaming projects appearing.

BRC-420 defines more complex asset formats through recursive means, combining multiple inscriptions into a complicated one, allowing anyone to create their metaverse inscriptions, including but not limited to gaming avatars, game DLCs, HTML, music, videos, and ultimately modularizing on-chain inscriptions. Moreover, BRC-420 supports on-chain royalties as one of its foundational application development features.

Discussing BRC-420 necessitates mentioning the Bitmap metaverse land project, where each parcel corresponds to every block on the Bitcoin blockchain, increasing as blocks synchronize. BRC-420 serves as the technical foundation behind this project.

Taproot Asset

Taproot Asset and the forthcoming RGB protocol, represent Client Side Validation, viewed by many developers as one of the most promising competitors for Bitcoin's long-term scalability solutions.

In the first half of 2024, Taproot Asset will undergo integration testing with the Lightning Network, with expectations of witnessing more Taproot Asset issuance on the Lightning Network and new applications in the coming year.

Does Taproot Asset enable a more secure and rapid token application in the Bitcoin ecosystem?

Noteworthy within the Taproot Asset protocol is the Nostr Asset Protocol project, which utilizes the Nostr protocol to control custodial wallets, enabling users to send and receive Taproot Asset assets via public-private key pairs within the Nostr protocol layer.

RGB

Although the RGB protocol missed out on the current Bitcoin ecosystem hype, it remains one of the best scaling solutions for Bitcoin in the long run. With support for smart contracts, it surpasses Taproot Asset in scalability and flexibility, with Tether even considering issuing USDT on the RGB protocol.

However, integrating RGB with the Lightning Network poses challenges, making short-term integration with the Liquid sidechain a temporary option for RGB. Founder Maxim also intends to create a network to carry RGB.

Growth of the Bitcoin Ecosystem through Experimentation

While the Ordinals and BRC-20 protocols, seemingly driven by speculation, affect the normal operation of the Bitcoin network, they may end up like the overabundance of uninnovative NFTs on Ethereum, losing significance and value when the speculation fades.

However, these recent protocols are no different in essence from past experimental Bitcoin applications like Colored Coins or the Counterparty protocol, all attempts to experiment with applying applications to the Bitcoin network. These projects have indeed left a historical impact on the Bitcoin network, inspiring numerous projects such as ARC-20, SRC-20, BRC-420, bridging gaps until the maturity of Taproot Asset and RGB protocols, successfully drawing attention to Bitcoin's ecosystem scalability disputes. This growth reflects the Bitcoin ecosystem's continuous evolution through trial and error.

Those who are not pleased with the impact of these new protocols on the Bitcoin network should perhaps offer more understanding. Yet, for those who endorse inscriptions or have invested in them, it is essential to comprehend that these are still early-stage projects with many security issues and market risks.